I actually agree with Mike on this for quite a few reasons:
What happens when you pump $700 billion of artificial money into an economy? All that extra cash goes into the pockets of the banks, they lend to the people, the people get an influx of money that shouldn’t be there, they are able to may more for less, prices rise, and your dollar becomes worth less. Did you notice that the dollar rebounded 13% against the Euro yesterday? That’s because artificial prices are deflating, and a single dollar is able regain some of its purchasing power. A $700 billion bailout is just making things worse. What we are doing is causing inflation, and it’s eating away at the savings of everyone regardless of how they’ve invested. What should be a sharp market correction that fixes itself over a year, will now get prolonged into 5+ years of economic slowdown.
Banks are holding “illiquid” assets, but what does that really mean? All that’s going on is the market has determined the prices of these assets to be too high. If banks would lower the price on these assets or dump them, savvy investors would buy them, so illiquid is just a relation of price. The problem is these banks don’t have enough capital to cover those losses. Those are the banks that deserve to fail. Their first priority should be the safeguard of their customers money. There are plenty of banks that have invested wisely in gold, metals, and other tangible assets that will survive this crash and much worse. Those that deserve to fail should fail.
We are asking people who did not forsee this problem to begin with to now play czar of the market and determine the prices of these bad mortgage debts. They are going to take this printed money, and instead of letting the market determine the price of the bad assets, they are going to say, “Here is the price!”, and start to purchase. This just props up a system that needs to deflate while inflation eats away at the dollar. Why should the very people who did not see this event happening be given control over determining the market price of bad assets?
This will not be the last time banks come back to drink from this well. Once we start down this path where some institutions are just “too big” or too important to fail, they will be back again and again. Banks will continue to take bigger risks than they should, OR we’ll need more government to control it. Other industries like auto, energy, medical will also have a case why they deserve government assistance, and that’s just not capitalism anymore. I don’t know what that is.
This “rescue package” is supposed to protect consumer confidence. Ask your neighbor how confident they are. The people I talk to are confident. They know things are going to get rougher if this doesn’t pass. They know they may have to save more, and pull back investments, and tighten their belts. Nonetheless they are ready to do it. They are still ready to invest and borrow wisely. They know that this country did not get to where it is today by the actions of its government, but by the determination of its people. This thing needs to run its course. We need to learn from our mistakes, and a year from now get back to growing our businesses, investing our dollars, and be stronger and smarter for it.
Hey guys. Man! I take 10 days off and look at all the subjects I missed. I just read this thread. When it comes to Wall St., I have no clue. But I’m slowly learning… While stocks are more liquid and you can move money to a more safe location, isn’t there a way to preserve RE assets? Is it not possible to pull some money from a property (via refi., equity loan etc…) to be used as a cash reserve to keep your RE business afloat until the economy improves? I realize that lending is tight, but there may be lenders available. What I mean by reserves is that the money taken out is spent ONLY on keeping the cashflow positive. Not on personal or non essential items. If you have the money to keep your debts paid (including the increased debt from a refi), you could “weather the storm” and not have to worry about selling at a loss. When the economy/ business environment improves, you can pay off the loan. This is assuming you have no cash reserves or not enough to keep you afloat. If you have the cash to weather the sorm, you don’t need/ want to go that route…
Is it not possible to pull some money from a property (via refi., equity loan etc..) to be used as a cash reserve to keep your RE business afloat until the economy improves?
If you have to borrow money to maintain cash flow in your real estate business, YOU’RE IN TROUBLE. That is exactly why I am always preaching about cash flow and operating expenses. In fact, at least in my area, the rental business has never been better. With fewer home buyers and more foreclosures, the rental demand is very high and rents are holding their own. The worst time in the past 20 years for rentals was during the recent boom, when good renters bought houses and all that was left were criminals and scumbags. Things have now come back to reality and the pool of renters is a LOT better.
I totally agree with that Mike. It all boils down to having both persoanal & business reserves to help you through the tough times if needed. If you have a stock that’s plunging, you may have to sell for a loss if you’re afraid of the stock end up being worthless. You have to do something to prevent a loss. In RE, you’ll likely benefit if you can afford to hold it long enough. It’s hard to believe the value would go to 0. I don’t know the process of moving stocks, bonds etc… but I’m sure there’s a way to preserve money like the “old money” does.